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Wednesday, August 10, 2011

Apple iBooks in the making

Apple and a group of book publishers were accused in a lawsuit today of illegally fixing e-book prices to "boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing." - CNET [AUGUST 9, 2011]

The Amazon kindle, [a hand-held device that displays digital books or e-books] was released in 2007, turning out to be a world-wide success, selling out in less than six hours. To gain market share, take advantage of its first-mover advantage, and capitalize on the tremendous efficiencies associated with eBooks, Amazon set eBook pricing levels significantly below prices for physical books."

Apple knew that if Amazon could establish the Kindle as the dominant eBook reader by reducing the value of e-books, Amazon could then use the Kindle platform (and its large installed user base) to distribute other digital media. Which would make Amazon a real contender against Apple's iTunes on their iPod, iPhone and iPad line.

To stop this, Apple conspired with HarperCollins Publishers, Hachette Book Group, Macmillan Publishers, Penguin Group, and Simon & Schuster to increase ebook prices. Introducing the "Agency model" which allows publishers set their own e-book prices, rather than the traditional wholesale model in which publishers set a retail price and retailers set their own sales price. In their attempt to stop Amazons $9.99 e-book price and Apple could smoothly enter the eBook market without having matching Amazons e-book cost.

"The Publisher Defendants and Apple implemented the unlawful agreement in January 2010, when five of the six major book publishers of fiction and nonfiction works almost simultaneously announced that they were switching from a wholesale pricing model to an Agency model for eBook sales."

iBooks (Apple's eBook store) was then released in late January along with the iPad, ("Apple's e-book reader").